I thought i’d write this article due to my unique long time history with videogames combined with my modern knowledge of economics. Most of this information (though maybe in a different format) will end up being in a chapter in a future book i’ll write, so please enjoy!
I’m of the first generation who’s been playing videogames almost since i was born, being nearly 34 now and having seen games since my father sat me down on his lap and played a game for me on the Commodore 64 when i was but 6 months old. My father tells me i was instantly fascinated.
Since i’ve been there since the beginning, i’ve met all the eras. After the Commodore there was a MS-Dos machine powered by a 486SX processor, i played on my friends Super Nintendo and got a PlayStation myself. As technology and time progressed, in early 2000 it was time for me to get my first own “modern” PC. The reason for it wasn’t so much me needing an upgrade; I was still having alot of fun on the old MS Dos machine. Just to indicate how old it is now by the progression of technology, it had 2 hard drives: 1 500 MEGAbytes, 1 600 megabytes. 4 MEGAbytes of RAM (a wealth of space compared to the 64 Kilobytes of the Commodore 64), 25 Megahertz CPU which didn’t have a mathematical co-processor, GPUs didn’t even exist, and a 4x speed CD-rom drive; And floppies! I got the upgrade because in my area they launched “Broadband” internet connections and the ol’ gal didn’t have internet capabilities.
Now i knew of the internet, but only through hanging around in chat rooms for an hour at a time in the library, and my mother had an ISDN connection which i wasn’t allowed to use (though we did try to download a trailer of Command and Conquer once, which failed after 4 hours). But, rightfully so, my father concluded connecting me via telephone would end up costing him thousands in dial-up fees, so it was not for me. However, cable broadband didn’t have any fees. Here in the Netherlands, it launched without datacaps, without data fees, simply a ~$30 monthly fee for 250 Kilobytes per second download, and 40 kilobytes per second upload speed of unlimited internet. This, and with the introduction of the new “Pentium 3 Coppermine” processors running at a whopping 600 Megahertz (about 7 times slower then a modern Intel I7 purely in clock speed) meant i got my proper introduction to the online world in May of 2000. First game i bought with the PC was Unreal Tournament, by the way.
I spent an ungodly amount of time playing videogames in my teens. Not in the least because i was bullied until i dropped out of high school so i had every reason to stay out of reality as much as i could. And throughout that journey i came across many interesting scenarios. It turns out that videogames, especially early on when little was understood and everything was tried, are perfect microcosms of various aspects of humanity. Basically, if you code a rigid system such as a videogame with strict rules that always runs the same, then throw humans into that system, they will adhere to the system as long as they have incentives to do so (game’s gotta be fun) but behave as pure blooded humans in whatever limited ways they are forced to when the system fails or runs into limitations (often due to computing power limitations).
Meaning, if you code an mechanic in your game that works, people will adhere to that mechanic, AKA play the game. But if a mechanic doesn’t work and the system fails, humans will instinctively navigate around that failure – both as individuals and as a group. For example an unintended shortcut due to bad map design; Humans are inventive and are always looking for an edge; And if a shortcut is possible one of them will figure out it exists. Once players figure it out they will utilize the shortcut every time as it is more efficient and gives them an edge; which causes others to realize the same exploit when it’s used against them or to their benefit in a team scenario and spread it through their use as well.
This doesn’t just apply to exploits, it applies to any kind of system failure. This is because humans will behave as humans, and while there might be quite the differences between individuals, on a whole we are very very similar. What works for one of us generally works for all of us. That’s why standardization has lead to such productivity increases; repeating the same action over and over again works well for us. If we where all high-level creative geniuses, the assembly line would’ve never been invented. Not a single person would be able to provide such mind numbing labor.
Now generally there’s not alot to learn about economy in Unreal Tournament (though i picked up a wealth of information on human prediction, but those are stories for another time). Around the end of 2000 i ran into a new and budding genre on the rise with the internet: MMORPGs. For those not familiar with the term Massive Multiplayer Online Role Playing Game; Think World of Warcraft. While it popularized the genre (and killed the diversity with its success), it was by far not the first. By the time it came around in 2004 i’d already played around 20 different ones, from classics such as Asheron’s call, Planetside (First MMO-FPS), City of Heroes (superhero MMO), to little knowns like Endless Ages (A full blown MMORPG built entirely by 4 people).
The essence of all of those games was still the same: Where “regular” games hardly ever offered more then 32 players in a multiplayer server, MMO’s offered thousands upon thousands. And when there are thousands of people gathered and an ability to exchange items between them is added, an economy exists. After all, “The Economy” is nothing more then people trading goods with each other, often through an intermediary. You can scale it down to 2 people, or up to millions. Each of the MMO’s i played whether it was driving in cars (Auto Assault), flying in space (Earth and Beyond) or running around as Superheroes (Champions Online) and regardless of server size, they all had an economy.
So too the very first MMO i ever played, called Redmoon Online. And it is here that i immediately came across my first important lesson in economics: What Happens In A Hyper-Inflationary Crash.
See, being one of the first MMOs (though again not thé first, that’d be Ultima Online), there wasn’t much to Redmoon Online. It can be described in 1 sentence: Run around and kill monsters until you hit the level cap. Ended up playing it for ~3 years, still the MMO i played the longest after World of Warcraft.
Look, i know alright? You where happy cause you didn’t know any better. Zoning out and running around killing monsters for hours to teen angst music was addicting. And i did meet alot of people along the way, MMO’s where alot more social back in those days since far less communication was automated. You couldn’t see each other’s levels, but you could only party with those close to your level – so you had to ask.
Anyways the reason why Redmoon had hyperinflation was due to a glaring design flaw they didn’t figure out until players leveled up to quite a high level. See, the top level cap of the game was level 1000. You spent time running around on a map killing monsters until you where strong enough to survive atleast 1 hit from the monsters on the next map (because if the servers lagged out you’d get one shot and drop all your stuff) and then you’d do it all over again. Which is alot more addicting then it sounds, as you go from very exciting moments barely being able to survive a new map; To slowly getting better and while learning and exploring the map, to relaxed farming until you can progress to the next map and meeting/talking with people along the way. As opposed to the modern by World of Warcraft inspired linear path from questhub to questhub at the exactly right (now even scaling) levels; Continuously equalizing your power into one long slog.
At this point i do wish to brag a little; You think YOU have had to grind levels? I played a 1998 MMO from Korea with a top level of 1000 and 5 quests in the game TOTAL. AND i’m an Altoholic, meaning i can’t stop making Alternative Characters, so i leveled (and deleted) quite a few.
Yeah thanks to global warming and modern industry my generation might not have stories about walking 30 miles up hill in the snow to get to school; but that doesn’t mean we don’t have any stories of our own for the next generation! Especially now that Gaming’s a massive industry and is considered “cool”. Get off my lawn! Scrubs.
Back on topic; Money wise the game worked like any other RPG. When you kill a monster, it drops gold. This gold could then be either used as a vehicle for trading high level items and rares or it could be spent on vendors to buy basic armor to help with level progression or, its main use, to buy food and water with. Food and Water restored a set amount of Hit Points and Mana, respectively. They did so instantly, so the general core gameplay loop was walking around killing stuff and meeting people doing the same until you ran out of food, then you’d travel to the safe zone to put whatever gold you didn’t need in the bank (because you dropped it all on death) and use some of it to restock food.
Sounds sensible, and it is. When your game has a top level of say 50 or 100 like all games up to that point had. After all, when you get stronger by leveling, the monsters need to get stronger too. They need to do more damage, because you have more hit points. More hit points also means stronger food is needed to heal up to full per button press. To keep balance and not make lower level characters godlike, the stronger food needs to be more expensive so weaker characters can’t afford it. This means the higher level players need a larger income, so higher level monsters drop more gold to facilitate this. Which is a system that has worked and still works elegantly… until you realize the experience curve is exponential.
Meaning, it becomes progressively harder to level up as your level increases, as each new level required the same experience to level up as the previous one – Plus something like 10%. This too is a industry wide system used with great success…. But not up to extreme levels such as 1000. As it seems nobody on the development team had any idea of Compound Interest, the experience required to level up from level 1 to level 2 was 5xp – the experience required from level 999 to 1000 required multiple Trillions (i forgot if it hit a Quadrillion or not).
And the only way to obtain that experience was to walk around on maps killing monsters. Which all had a very high chance of dropping gold as they died. Piles and piles of it.
Yeah, it’s obvious now but it wasn’t at the time. Because of the long time it took to reach high levels, by the time people reached the high hundreds in levels and the maps associated with them, which legitimately took more then a year, gold had become entirely worthless. Because the high levels where already earning millions per hour, while up to level 300 a million would last you years in food costs. And due to the sheer amount of experience needed, the very first person to reach level 1000 on the US servers took 2 and 1/2 years to do so. He got a golden ingame statue for his troubles.
It wasn’t helped by the fact that gold piles dropped on the ground stayed put for quite a while, there where no “tagging” systems or personalized looting systems so everybody could pick up everything, and socially there was little to do then to hang around and use it as a chat room when you where bored of leveling (or just wanted to hang with friends!). So the low level town areas (the leveling maps had level protections) where usually filled with a few high levels drawing figurines on the ground in piles of gold of the maximum drop size. Since there was little else to do then kill and pick up gold; Everybody continued to do it anyway and the amount of currency in game kept skyrocketing regardless. Any low level toon would just grab a pile and have food costs taken care of until the point where it wasn’t an issue anymore while continuing to pick up gold along the way.
Though, it was advisable to run immediately into the bank and banking it after doing something like that. Some of the high levels didn’t like you messing with their drawings.
Naturally this situation couldn’t continue for long. There was very little trade in the game because the rare weapons would go for so many billions which where useless because it covered even their food costs for months, it wasn’t worth the effort. Trade happened among high levels only on a “who you know” basis and barter. And this being a videogame, there was no alternative either, because anything to be used had to be coded in. Games like that tend to get abandoned… but the developers ended up introducing a fix for the problem without meaning to.
See, you didn’t actually have to trade for gold. The Auction House wasn’t invented yet, instead trade ingame would work via a “bulletin board” that was accessible from the main square in each safe zone town. And on that board you could list items to be traded for other items, Or a specified amount of gold (as opposed to an auction house’s gold-only system). During the hyperinflation rarely anything was listed there, sometimes a rare item in trade for another specific rare item, but to anybody below the top 1% it was entirely useless.
Until the developers introduced “Boosters”.
They’re not anything like modern boosters which you have to pay for, these are simply stat boosters that had a chance to drop from monsters upon death. They where referred to as “Thin” and “Fat” boosters, because of their graphic representation by a colored syringe either fat or thin, giving 10 or 5 minutes boost respectively. Most of these just increased damage or defense in some roundabout way, giving you more of a stat or just straight up increasing attack damage or reducing damage. While desirable none of these changed anything about the economy…. Except for 1, called the “Quickyne”.
These Quickynes, or “quickies” as they became known in the game, doubled your movement speed and doubled your action speed. Being able to move and attack twice as fast effectively meant that your leveling speed doubled. After all, you could kill monsters by attacking or casting a spell twice as fast as well as find new monsters twice as fast and loot twice as fast (as looting was just moving from pile to pile). Naturally this is extremely desirable in a game that is all about leveling and has such an extreme level cap.
Through this fact, the developers had accidentally introduced the solution to the hyperinflation. Because the above gave quickies “Universal Utility”. In other words, the utility of the item extended to all users of the system. Everybody, at all levels, wanted to have Quickynes to increase their leveling speed.
Meanwhile, these Quickynes where anything but a guaranteed drop. First of all they didn’t start dropping until higher levels, i believe ~level 150 for the thin ones and ~300 for the fat ones. Second, they had a low drop chance per booster rather then the high chance the monsters had to drop a small amount of gold. Thirdly, the drop chance of Quickynes was shared by the 11 other booster variants of considerable less utility value (a Strength booster had no use to a mage which used Spirit), increasing scarcity further.
The quickies dropped at a relatively low rate compared to the number of monsters killed per minute, while the usage of quickies permanently outstripped the possible supply (Even high levels leveled additional characters, everybody had 3 character slots and many ran multiple accounts) thus providing a set rate at which they where continually drained out of the economy, as their usefulness per user never faded. This caused prices for all goods to stabilize when consumption and production of Quickynes reached equilibrium. And because bulletin boards could trade items for items, they where automatically tradeable in large amounts.
It proved to be Money, in every single sense of the word.
To this day it remains the most stable currency i’ve ever observed. Very soon after the introduction of Quickynes trade was revitalized and the prices stayed stable even until the servers shut down. Uniques and Set Items would be traded for 20,000 to 40,000 Fat Quickies, depending on rarity and durability. Meanwhile, you only ever saw gold be used in trades when a high level needed to replenish his food supply. The NPC vendors at high levels still required gold for food, but because gold had become so worthless, it was far more lucrative for very high level players to just sell a low level rare for 2 to 4 Billion gold and run food costs off that for months of farming, rather then to pick up every pile of gold along the way. Every booster got picked up though.
This to me was maybe my first lesson in Real World Economics, a lesson i think very few people will share and many academics could do with. Namely it shows not only what happens in an hyperinflationary crash (people switch out of the inflating asset for a limited-supply asset instinctively) but it also shows that UTILITY value is what determines what gets used as money in the end. Not Scarcity.
This is shown in the fact that there where 12 boosters in the game; And all of their effects are desirable to have. Protyne M for example to protect yourself from monsters, in a game all about killing monsters, appears to be very desirable as well. So why where only Quickynes used as currency?
That is because Protynes and all other boosters on that list, except for Quickynes, only provide situational utility. To run through the list:
- Toxynes poison the enemy, which is nice – but in the game as a mage you could easily 1 shot the strongest monster on a map long before hitting the next map, so you didn’t need any more damage at that point.
- Anubynes protect from holds/bad effects. Very useful, but not every map or sections of maps contained monsters with these abilities, and even then there where other items to counteract these as well left over from before boosters where introduced. So in practice, it was a item stack saver – if you didn’t have to carry a stack of the special item (which cost weight) you could carry more food to level longer.
- Protynes are already split; one protects from monsters one protects from Players. The player one is only worth something in PvP. While in PvE, just as you got strong enough to 1 shot monsters, you also got sturdy enough to survive unlimited amount of attacks from monsters long before progressing to the next map, making Protynes useless during that time.
- Mora/Coura/Adrena/Dextyne are by nature situational. If you’re a mage you use Spirit, so Dexterity boosters are virtually useless. Power is the most useful, as that boosts hit points – but again if you where already power-capped on any map, more didn’t do any good.
- Carbodynes where the most useful after Quickynes, as you could run in the game but it required stamina. And with a Carbodyne you could run unlimited amounts. However, Dexterity also increased your stamina available, so high dexterity characters above level ~300 effectively never ran out of stamina anyway.
- Arynes increase attack damage, but again if you where already strong enough to 1 shot monsters on the map you didn’t need Arynes. Also, since your attack power increased slowly, there was quite a time between 2 shotting a monster and 1 shotting a monster (going from 2 casts per monster to 1 cast sped up leveling considerably). If a +15% increase didn’t do enough to change the 2 shot into a 1 shot, it did nothing for leveling speed and therefor had no utility.
- Visynes where the most useless as very few maps contained invisible monsters, so it was a PvP booster mostly.
Quickynes however where useful in every situation. For traveling quicker, leveling quicker, looting quicker and killing both monsters and players quicker. This universal utility was what caused it to be adopted as the new currency of the game almost right away while other boosters where traded by using Quickynes as an intermediary. While barter still happened, Quickyne based trade was at the least 90% of all trade. This proved for me conclusively, even before i learned anything about economics specifically (the first economics class in high school was the year after i dropped out and 2008 was many years away), that Utility value is what humans truly value and it is what determines what asset comes out of hyperinflation as the new Money that everybody trusts, because its universally needed or wanted.
If it where just this game it could be written off as a fluke; but as games and economic theory progressed, another MMO has made quite successful use of these facts. Path of Exile, another game i’ve logged many hours on, doesn’t use “currency” in traditional sense at all. It doesn’t have the equivalent of “gold” or “cash” in it, or indeed any set item that serves as a reserve currency if you will. Instead, it has many items that each also each have their own utility value in the game.
It starts with the “copper” or least-worth currency item in the game, the Scrolls of Wisdom. A well known item from the Diablo franchise (and indeed Path of Exile is a Diablo-like, free to play too so i recommend checking it out if for no other reason then an economics lesson), its function is to identify items that drop from monsters . As long as items are unidentified, they cannot be used by characters or be altered in any way (though trade is still possible). However due to Path of Exile being yet another game like Redmoon focused around ridiculous amounts of grinding, scrolls of wisdom aren’t even picked up by the high levels. In fact the game features loot filters that hide low value items which filters scrolls of wisdom out fairly quickly. So, in trade, they too are not used. Most players get scrolls of wisdom via Vendoring some of the higher-worth currency items to NPCs, which then gives a multiple of scrolls of wisdom in return.
Most items higher up in the value chain pertain to changing the modifiers on gear. The entire game is based around finding gear with the right modifiers with perfect numerical rolls on them, to make a “perfect” build revolving around one, or a particular set of abilities. When items are dropped/unidentified, the item rolls between many modifiers that can appear on the item, then rolls the values on those modifiers, and then you just pray to RNGesus (Random Number Generator Jesus) for the right outcome. Naturally that doesn’t happen very often, but when it does, it’s one hell of a rush.
Effectively, Path of Exile runs on a system of Barter (there is no in game auction house, but there are automated external trading websites using the game’s trading API); But it’s a barter system where certain items have been given Universal Utility value so they can serve as intermediaries for items that cannot otherwise be straight up valued – Since gear is so incredibly situational, like the Redmoon boosters each piece of gear has a different value to a different person at a different time. That’s why intermediaries are necessary as an anchor for each individual to line up their perception of value with, through experience of its utility value, both in virtual worlds and in the real world.
Atleast that’s what they claim, but even Path of Exile cannot circumvent human nature. Path of Exile thus teaches us another important lesson: While money may be determined by Utility Value first, and Scarcity Value second – it is determined by Convenience thirdly. EVEN Path of Exile has a reserve currency: The Chaos Orb.
Chaos orbs are used the most in trade by far. They are the “default” currency to trade the vast majority of items in. There are more rare currencies, Exalt orbs are considerably more expensive and rare, and their usage is far more desirable as well – but their low prevalence makes them unsuited for general trade. Items do get traded in for lesser currencies – but this only happens if the price drops below a single Chaos Orb, as they aren’t fractionally divisible (proving by the way that non-divisibility doesn’t have to be a problem as long as there are lower utility value alternatives). Orbs of Alchemy get used in trade as “lesser chaos orbs” in general, below those it becomes a mess. Other currencies are only used situationally – it depends on what the user needs to collect, as for instance to get the maximum number of sockets on an item or the right combination of colored sockets can consume vast quantities of specialty orbs to obtain.
Here the interesting lesson comes from the fact that there are currencies that are worth almost the same as a Chaos orb with equal relative rarity, with similar universal utility, yet they don’t get used as either the default trading currency to price everything in, or even as competing currencies where a significant number of trade is done in those currencies. This again goes to the utility value of the currency.
The function of Chaos Orbs is to Reroll the modifiers on an item. Path of Exile works on a basis of a “base” item, namely a particular piece of named white gear, which then can have a whole set of possible modifiers slapped randomly together on it turning it into a yellow Rare item. There are some rules to protect against the game engine breaking of course, but naturally some combinations of modifiers are VASTLY more desirable then other combinations. Just as an example at a very high level you want more life (or energy shield) on basically every item you have, as damage taken scales up to such ridiculous heights having a massive health buffer becomes the only way to not instantly explode all over the walls when you walk into any random room.
Naturally with a huge list of modifiers which “have to just happen to line up”, once the right base item drops many Chaos orbs can get consumed trying to make it perfect. And with the incredible amount of possible “builds”, or variations on how to play the game, there is continuous demand for new “perfect” combinations of modifiers, causing a continuous demand for the utility of Chaos orbs.
Now, contrast this to something like the Orb of Scouring. Trading at 3 scourings per chaos, the Orb of Scouring returns a yellow item to its white base state – it strips all modifications and additions like enchantments off an item. At first it seems logical that the Chaos orb is more desirable due to its utility value – after all you can only strip all stats off an item once before you need to make it rare again. But here we see the little glitch of Convenience take place by introducing yet another desirable currency item: The Orb of Alchemy.
The Orb of Alchemy simply turns a white item into a yellow item. So it functions practically the same as a Chaos orb – only instead of re-rolling modifiers on an already-yellow item, it turns a white item into a yellow item and rolls random modifiers for the first time. Now any FX traders with an hyperactive brain and an eye for detail might realize something from the above exchange rates:
You can buy 8.3 orbs of alchemy for 1 chaos orb, while you can buy 2.7 orbs of scouring for 1 chaos orb. This puts 1 orb of scouring + 1 orb of alchemy combo at roughly (1/8.3)+(1/2.7)= ~0.49 Chaos Orbs, for the exact same functionality as a Chaos Orb, namely providing a new set of modifiers on a base item. You could effectively establish an FX swap ratio where you swap chaos orbs for scouring+alchemy orbs, buy white items on the cheap, reroll a set number of times per items to achieve good or best in slot, sell those items for chaos orbs, and get double the output or profit of somebody buying a good yellow base with shit modifyers and rerolling them with chaos orbs until perfection and then sell them on. With this kind of spread it’s essentially free money.
So why have i literally never done that nor will there be very many people who have, outside the most hardcore of traders? Convenience. Chaos orbs at high level are decently plentiful; Exalt orbs exist so that high level items don’t get traded for thousands of chaos orbs. Mainly due to how the inventory system works; you can’t stack more then 10 chaos orbs on top of each other in your bags so trading higher numbers then 200 becomes real cumbersome real fast. Convenience of use is also a factor; By holding shift when using a currency you can continue to spend them on an item (including expending currency in your stash instead of your personal inventory while you’re in town) instead of having to click individual orbs over and over again.
The time value of collecting 2 currency items over 1 isn’t worth it at high levels where most economic activity takes place; not when you can sell a rare item for tens of chaos orbs, or sell an exalt orb for the same. And while new builds might get started all the time, once one is started, per person per build it takes a while to run to fruition, and often other strong yellow items are only useful if they synergize with other items in your build – again the value of items changes heavily depending on the situation; Which also serves as the main reason to have a single reference of value. In Path of Exile, that ended up becoming the Chaos Orb, as out of all the available candidates which are all Money, it was the most convenient for all involved.
This also has a real world analogy: Platinum is equally as scarce as Gold and has similar anti-corrosive properties. But it has rarely been used as money (though there are instances of that). The answer of why is in convenience: Platinum is both a much Harder metal then Gold, making it less malleable, but it also has a much higher melting point of 1768.3 degrees Celcius vs gold’s 1064.18 degrees Celcius. Once you get above a certain temperature (~1500C) it gets alot harder to pump even more heat into a smaller space. These facts made Platinum hard to work with in antiquity. And even if you go through the trouble the end result ends up looking like shiny silver or even aluminium coin, as Platinum is a grey colored metal, diminishing exclusivity value (it’s only exclusive when other people can see it’s exclusive. Gold is flashy).
While Redmoon wasn’t the only MMO that ended up with an hyperinflationary crash, it is the prime example i have direct experience with, and to my knowledge one of the few if not the only MMO that recovered from it; As plenty of MMOs have died due to a bum economy. But on that note, i have seen the other side of the coin as well. Something i will bet nobody else has proper experience with: A Hyper-Deflationary crash. And no, i don’t mean Japan, or the US during the Great Depression. Compared to this, those events where blips. Ripples on an ocean. At the same time, this experience shows that a deflationary crash isn’t something to be feared per se. In fact; it’s something desirable as long as it’s managed properly.
As i’ve stated before, one of the other MMO’s i played before World of Warcraft even existed was City of Heroes. I played it mainly during the beta as the closed beta community was very friendly. These where the days before dungeon finders or looking for group tools, so any group was basically constructed by yelling and spamming in main chat “LFG Tank 2DPS CAN SUMMON!” or something similar. Again, you where happy with what you had, because you didn’t know any better. After release though the “pubbies” turned out to be far more toxic then the beta community which could get a group together at any time within 5 minutes. Chat was a mess. Even though i’m sure the game improved afterwards i’d moved on to bigger/better things by then.
But i did very much enjoy my time with it. So, when i heard about a successor called Champions Online made by the same studio, i was all in!
I signed up for the Beta test and got in thanks to my history, and i did like the beta once again. It did have its problems, but nothing that i couldn’t see getting fixed. Unfortunately; it was not to be. A week before launch they got cold feet over the lack of content and nerfed the experience gain by 50%, causing content gaps all over the place. Their objective being to slow people from reaching the level cap too quickly after launch as there was little end game content. A mistake as it only extended the time we needed to reach max level by a week. Seems the developers had no idea how much people would grind if they needed to, again a common mistake in the industry: How do you kill that which has no life?
While the design was there, if a little rough around the edges, the mistakes they made trying to fix earlier mistakes killed the community outright. It did muddle on for years (and still exists as a free to play game) but its player base was nowhere near significant ever again. However, as i paid for an lifetime subscription (and was taught the expensive but valuable lesson of “Just cause the dev’s didn’t fuck up yesterday doesn’t mean they won’t fuck up tomorrow”) i did play the game longer then i wanted to, to atleast get something out of it. And fortunately i did.
See, Champions Online’s server structure was different from City of Heroes. Being developed much earlier, City of Heroes had the traditional “cram as much people as you can into one server and if the server starts to lag, start another server” structure as was common in the early 2000’s. While computers kept getting faster, the expectations of ingame functionality increased even faster still. Considering everybody has to run the game in sync with each other, the more data you add to the game to transmit, the exponentially more data needs to be transmitted as player counts increase. 1 kb to 2 players = 2kb, 2kb to 4 players = 8kb.
In the late 2000’s Champions Online’s “fix” to this problem, meaning trying to stuff more players in an ever increasing data environment, was to create an overarching “realm” while limiting maps to “shards” of 100 people in size. At the time this was a (relatively) new solution. People could travel freely between these shards and even select them manually as to not separate friends and all instances where linked in every way – there where no limits on carrying over items or money. Effectively they had the same server structure as Path of Exile ended up having. Technically, it meant that hundreds of thousands of players would play on the same server; Even if you’d never see more then 100 at any given time.
Before i get to the economic side of things; Let me just explain what ended up happening in practice to the feel of the game when this theory was applied; As i’m a long term gamer who’s seen a favorite genre decline because the industry lost its way. The game felt even smaller then a regular 16 player multiplayer shooter (only in RPG form). This because the maps where relatively big with plenty of things to do…. So the times you ran into another person where far and few in between. While this could play into the superhero fantasy, clearing alot of minions by yourself, as an Massively Multiplayer game it felt nothing like one. And while many MMOs have focused on making the player as powerful as they can be to lean into this power fantasy they’ve all forgotten that MMOs are about playing together, not necessarily about feeling powerful. Just as an example, In World of Warcraft i’ve killed gods, old gods, new gods, titans, all sort of supercharged abominations and in the next expansion i’m apparently going to take on death itself.
Meanwhile so has everybody else, and the gear reset will mean i’m going to get ganked by overpulling 2-3 regular ass Deer (oh i’m sorry, “ghost deer”) in the woods while i’m leveling up after just replacing my god-killer epic gear with uncommon greens, because they’re objectively stronger. Again by the way, because i first started thinking about this very problem when a regular ass deer (a literal normal deer) kicked my epic geared ass in Northrend. I think we’ve stretched this power fantasy as far as it can go. Meanwhile; there’s NO guild functionality after all this time. Oh sure, you can be in a guild with people and have a guild bank to store money – even design a tabard! All things you could already do in 2007. Meanwhile, years ago they added Guild Levels to try and expand the functionality, it Failed, and they REMOVED it! Later in Warlords of Draenor they did add entire garrisons for players to play with (because of Facebook’s Farmville success and them trying to replicate it), but once again the obvious – Guild garrisons – where completely ignored and never added.
Guild housing, guild events, guild hosted (argent) tournaments, Wintergrasp style PvP guild invasions – all easy to think off ideas, all ignored. Meanwhile they will add a Player versus Enviroment Warfront which is exactly what everybody ever wanted – buildable buildings, Alliance vs Horde, Army vs Army with a dynamic battlefield…. Then they refuse to make it social by making it player vs player or guild vs guild for the entire expansion and keep it as one really badly tuned and boring to run public raid – Boring because you can’t just toss 40 random people in with each other via a random queue and expect them to work together, so the difficulty can never be increased through complexity, so in practice it equates to a boring 30 minute grind for some easy gear. I’ve never not-facerolled a warfront.
But i digress; I’ll have plenty to say about game design in the future (though i’ll return to WoW later). For now, the interesting thing is what ended up happening to Champions Online economy in the freshly minted multi-shard system. You see, there is one thing they didn’t think of: The relative rarity of items when the drop chance was spread across an essentially incalculable amount of people as you never know how many people will play your game at any given time – which ended up being hundreds of thousands of people at launch.
See, Drop chance or the relative chance an item has to drop taken over many kills of a monster, Has to be weighed against the relative player base. For example, if you have 10 players and something has a 10% chance to drop, assuming everybody kills the monster once, one person should end up with the item. Naturally with chance calculation, when you take a very small dataset like that you’ll end up with wildly different results since every roll is a new roll – fate does not have a memory. So out 10 rolls with a 10% drop chance, you might easily pull 5-6 items on a set of 10 players…. and 0 items on a set of ~60. It may be rare, but it does happen. So drop chance is usually calculated over the amount of players that are expected to kill something X amount of times. Since MMOs always have a physical limitation on content, everything that can be farmed once will be farmed many times.
The logical conclusion is simple; To retain relative rarity of items, you have to reduce the drop chance further the more people are expected to farm the item. Drop chances for end game content have to be substantially lower then for leveling content, as people will pass through leveling content while getting stuck on endgame content; So the time they are expected to farm that lower level content is substantially less then when levels stop increasing.
But with a player base of hundreds of thousands this too runs into a problem: Individual fun. If you spread the drop chance across a very large player base, the amount of times each player will see each item in the game and have a chance to obtain it, drops with it. After all Rarity is Scarcity. But this goes directly against the power fantasy design of the game – if you cannot obtain “epic” items, you will not feel powerful as the game is designed to increase your power through these epic items (note this only goes for Gear based designs – Redmoon used Character Bonus Points as a power base and stat increasing gear was limited to very high levels only). With Currency items based on Drop Chance this isn’t a problem as you want the currency to be common, just not so common as to be worthless or inflate/become unstable. But with things designed to “feel” rare or to generate some sort of feeling of uniqueness… well they have to be rare.
How did Champions Online fix this dichotomy? Well, as i gave away earlier, they didn’t. They grossly miscalculated the economy because they couldn’t reduce drop chance enough to give individual players the items they needed while keeping their relative rarity. As a result it had a hyperdeflationary crash: Products became worthless…. or well, almost worthless. Nowhere was this more apparent then Crafting.
Champions online also had a crafting system, because of course it had a crafting system. Being released in late 2000’s, crafting systems where all the rage (Blame Minecraft) so of course even a superhero MMO should have a crafting/gear based economy. Why are you even questioning this? Few at the time did.
Naturally there are only a few designs for crafting systems in MMOs that the industry has come up with, because MMOs are expensive to make so it’s very expensive to gamble. They went with a tried and true method at the time: The more you make of something, the more your skill goes up, the better you get at making stuff so the more rare stuff you can make – which cost more effort to gather the ingredients, so crafting slows down until you reach an “ultimate” level with reagents that only drop a few times from very strong opponents.
Well, this means players end up with lot of items made while leveling up. What are they going to do with those items? Well sell them on the auction house of course! This was Post-WoW which introduced the auction house (an automated selling bulletin board based around currency only basically), so of course there would be an auction house. Why are you even questioning this? Nobody at the time did. Selling them to a NPC Vendor for money was also possible, but that was supposed to be a token amount compared to the open market value, a convenient way of clearing limited inventory space.
So that’s exactly what people did. Hundreds of Thousands put the exact same items (as the game was content starved) on the exact same auction house. And naturally, if you wanna sell something while somebody else is already selling that item or something similar, you offer a slightly lower price to undercut as people will only go for the lowest price; The items being the exactly the same in functionality.
Now there’s 1 thing that could negate the calamity that’s becoming clear and that is if people had a continuous need for these items, such as with Chaos Orbs or Quikynes. Should they degrade rapidly or be useless after one use (World of Warcraft employs a “soulbound” system that binds gear to characters), then they would need to be resupplied rapidly, negating the large production volume with a large consumption volume. Which works for consumables such as the above mentioned Quickynes, but it doesn’t work for permanent items such as (repairable) chest armor. The items that received the most complaints by far where Bags.
Anybody who’s played World of Warcraft (or MMOs in general) knows the importance of Bags. Since giving millions the ability to hold unlimited items tends to give database engineers a stroke, all MMO’s have got some sort of limiter on carry capacity. The most popular method is to have each item take up 1 “slot” in your inventory and when all slots are filled you have to travel to town to empty your bags (second most popular being weight based systems). Tradeable Bag Items then often offer the ability to increase your carrying capacity to some extent. Naturally this is incredibly desirably for all people in the game, and indeed bag items could even function as a currency if they where a consumable in some way. But they’re not. Once you obtain a bag, it lasts for as long as you wish to use it. Damage or death does not degrade them. Naturally, the largest slot bags – those offering the most inventory space – are at the end of that upgrade chain and get used permanently when obtained (unless higher slot bags are added later).
But again this is based on rarity – the amount of people which desire these bags has to outstrip the supply of these bags to some degree. Since Champions Online miscalculated the amount of people that would be farming monsters dropping the reagents for bags, the supply of the highest slot bags was so plentiful, that the actual market price was the tiniest fraction above the NPC vendor price and all smaller slot bags where virtually non-existent. Basically, the market was continually filled beyond capacity so that any new items made where just vendored. As the supply was so large, there wasn’t even a point bringing them to market. I vendored my own epic bags that i made as i saw the crafting system problems immediately; And as such had already been running around with the end level 50 bags since around level 18 (as their main limiter was economic value, unlike gear there wasn’t a strict level limit placed on them). Obviously, the more you can carry the more you can bring back to sell so the more money you generate; So they are the first thing you should upgrade when you can.
If i remember correctly, the price of those bags was 1 gold per bag; Noting that around level 40 out of 50 (3 weeks after release) i was already running around with 500-600 gold just from leveling (carrying larger-then-i-was-supposed-to bags). Each person only had the capacity (and use) to carry 4 bags. Taken that, i’d estimate the intended/anticipated price for those bags would’ve been ~1000 gold per bag in a correctly functioning economy. But because the supply of people making these bags was so large, prices where depressed to the minimum. And since people had to make such things to level up their own crafting skill for their own purposes as well, had there not been a “minimum effort NPC vendor price”, prices would’ve dropped all the way to coppers. Even though i’ve singled out bags, this was the same for virtually all crafted materials and similar for world drops. Upgrading gear was as easy as running to the market at any given time and buying the cheapest option – which where epic class items anyway.
But here we come to the question of: Well why is a deflationary crash bad then? In the case of the videogame the answer is easy: Because the price of sale drops so close to the cost of production, the vast majority of people will never derive any income from selling things they produce, hampering ingame progression based on money. And true, in ye olden days where everybody in the real world survived soley on what they sold this would’ve been bad in the real world too, directly reducing peoples income and thus ability to survive. But there’s one important take away from Champions Online: Nobody was Poor.
True, nobody had any significant income from selling their crafted goods on the market. But, people still received income from the system: The monsters they killed that dropped silver and gold as well as the money received from selling “vendor trash”, or items which serve no other purpose then to be sold to an NPC. And because the prices of all items where so incredibly depressed while the need to fabricate them continued to be there because of skill levels and the monsters killed dropped the resources for crafting as well, while the items when bought never degraded – Literally everybody ended up having every item they ever needed.
Yes, nobody got any significant income from selling “epic” bags as they weren’t rare – but at the same time, everybody was running around with epic bags.
Translate that to real life and the following would be true: Not a single person would be a millionaire – but every single person would have 4 Ferrari’s in the driveway.
What does it matter that you don’t have 1000 gold in the bank to buy an epic bag, when the epic bag costs 1 gold? What does it matter you don’t have a million dollars so your family never goes hungry, when most the food produced is given away anyway because it’s not economical to sell it? From a consumers perspective, a deflationary crash is the best thing that could possibly happen. Now don’t worry i haven’t forgotten that most people are also producers in some way: They sell their labor to obtain the income to consume with.
But here we arrive at a weird dichotomy the world has refused to deal with so far: Not everybody needs to sell their labor anymore for us to collectively survive, or even have our collective wants taken care of.
Currently on average in advanced economies about 2,4% of the population is required for farming. In the past, this was considerably more, but thanks to the industrial, machine and digital revolutions, this number is only going to continue to drop. If we as a society would commit to a Manhattan style project to fully automate the food chain i have no doubt we could push that number well below 0,1% of the global population to feed a global population of 8 billion should we so chose to. The value proposition might not be there, but the technology already is.
But this also leads to an inescapable conclusion: If you could subsidize the wages of that 2,4% of the population – decoupling their income from their production – then a society could make all food free without negative repercussions. OBVIOUSLY this also means that that income has to be obtained through other means of production. Typing this before anybody accuses me of such filth as believing in MMT or free money. Naturally the raw resources used in the process also need to be compensated for, but there are many things such as food that require little raw resource (bit of light, water and manure really) with just alot of time and labor, mechanical or otherwise.
But the principle is there. If you could for example fund that 2,4% of the population through the production, refining and sale of hydrocarbons (oil income), then the production would be paid for and you could legitimately just drop food in stores for free. This isn’t entirely without precedent either. Though i can’t find the exact numbers now, i did read about Alaska giving a check of around $2300 to every tax paying resident somewhere in the 2000’s (though they’ve done it often enough). This because the state’s oil revenues exceeded the state’s budget so they ran a massive surplus (Oil ran up to $150 a barrel before the Great Financial Crisis), and having run out of places to spend the money on justifiably, they decided to return it to the tax payers.
So if you run the numbers, let’s say a $2400 check divided by 12 months (cause i like quik mafs) equals to $200 a month in essentially “Universal Basic Income” that’s wholly justified by production. Should the average Alaskan Tax payer’s food costs be $200 per month or below, you could reliably state that Alaskans had their food subsidized by the government via universal basic income, without any ill or unwanted economic effects as it was wholly justified by production. It is less a question of if it’s possible, and more a question of can the politicians keep their dick in their pants and only tax income justified by production, spend only what they tax as well as actually spending the money on the program they promised to spend it on.
Misallocation of funds is a vastly larger problem then anybody currently in authority wants to admit to. Not even corruption. Just filling budget gaps with money not meant to fill those gaps because they don’t want to raise taxes and get voted out.
In the game, the low cost of goods would’ve been a problem if players didn’t receive currency from killing monsters in the game. If their ONLY recourse to obtain currency to purchase products with was selling their own products (with a central authority providing liquidity instead), the economy would’ve been permanently shutdown in a week due to poverty, much like the deflationary spiral of the Great Depression. However, since providing labor in the game through the time consumption of killing monsters provided income, there was no difficulty for any player to obtain any items off the market. The complaints about the non-functioning economy where exactly about this fact: Since it’s a game and competition is a key part of video games, some players play these games explicitly to become market gurus in their specific segment (i happen to know a few). So the complaint wasn’t that nobody was poor; But that that shouldn’t happen in the first place, as the exclusivity of being rich is exactly why some people play the game.
Which is fine, because it pertains a video game which you choose to play… But when it’s about real life where real suffering can be prevented, the paradigm changes. It is far more desirable for everybody to live like a rich person while nobody has large amounts of currency, rather then almost nobody living like a rich person AND actually being poor. Yes i’m aware of the failings of Communism. But Communism seeks to redistribute production to the unproductive, from those inputting time and labor to those who input none, which is another matter entirely.
The only reason the world thinks a deflationary crash isn’t desirable, is because “the exclusivity of being rich is exactly why some people play the game”. And those people happen to be in charge, or have at the very least convinced the poor they should listen to the rich.
Regardless, what could be used to justify income without production? Well, modern economies already have such a thing: Services. The service economy that has developed in western nations is a direct result of the deflationary nature of Technology. Because Technology increases productivity, more items can be produced at the same cost of labor, thus the price of those items is reduced. After all, labor directly adds value to products as the time and effort it costs to make something is reflected in its price, due to the nature of reality: All production is in one way or another done by human labor. Even robotic production (at least for the time being) still requires human interaction to develop, build and maintain.
But due to the evolution of technology, the amount of labor that can be assigned per person has increased tremendously. Just as an example, a miner with a pickaxe or a miner with a mechanical drill produce vastly different amounts of raw materials while still retaining the same amount of labor: it requires 1 miner. And in the 21st century, though really even in the 20th century, this has started to run into a wall: We don’t want more. Not only are our needs satisfied, our wants are too.
Sure, not everybody has a 150 meter yacht yet, but not everybody actually wants one. This due to limitations to our existence: We can only be in one place at any one time. When everybody is given infinite money, not everybody is going to spend it on yachts, human preference meaning some will spend it on other (still lavish) goods.
Naturally this is an absurd example, but if we bring it back down to less lavish goods; How many of us actually still need to find a source of food? Yes, i’m well aware of the supply chain issues in the US and other countries around the toilet paper panic. It still runs on human labor that must be compensated for and if interrupted, the supply chain breaks down.
However this has to do with inefficiencies in the supply chain and unpreparedness for certain events to happen. In other words; it has Nothing to do with the production of food. The many reports of farmers tilling over crops or letting potatoes rot because they had no way to bring their produce to consumers because of packaging reasons proves as much. It had to do with both the transport as well as over-regulation before those products where allowed to be sold. Had the authorities said “Just throw whatever you have in whatever truck you can find, bring it to the people and tell them to bring their own box – we will pay for whatever it costs. Price gougers will be shot.”, there would have been little difficulty getting atleast some food to the people at affordable prices. It would’ve just not been according to regulations, and could’ve possibly opened up somebody to a lawsuit. This is unwillingness to act, not impossibility.
When this limit first started to get hit, was when the majority of the population in advanced economies had their needs taken care of. Basically, supermarkets provide a steady source of food at very low pricing. You have to see this at the vast scale it has to be done: There’s 7,8 billion people on the planet that need to be fed now. Sure, not all are located in the same place and certainly not everybody is getting their fill of food yet, but all countries have gone up in population tremendously compared to the early 20th or 19th centuries, and a very large portion of them are food secure. A lot of attention goes out to the people who do not yet have food security, and my heart goes out to them. However, what is often glossed over is that the people who do have food security is a multiple of the entire world population circa 1900, which already numbered billions, of which we needed ~35% to work the land. Here the price deflation through the increase in production efficiency has been masked by population increases, but as population growth has stalled out in advanced nations, that too is coming to an end.
Imagine that; Population growth in many countries has stalled out, and ONLY NOW are we beginning with the development of vertical farming – using hydroponics, controlled nourishment as well as hyper-efficient LED lighting (compared to Edison’s lightbulb it is) to grow plants vertically INSIDE tall buildings, ripping farming from arable land; While powering it with CO2 free nuclear power generation (well, soon). While it will never replace high quality arable farmland, it will surely supplement it, further increasing the total amount of food produced and available, decreasing prices further.
And we’re doing so with 2,4% of the population on average as opposed to the 60% on average in 1800.
As all these people stopped being needed on the land, they initially moved to the city to work in factories. As direct steam power wasn’t nearly as energy-dense as our modern hydrocarbon economy (and the future Electrified economy will blow our modern economy out the water too) the advanced production of goods required many human hands to feed and maintain the machines. Naturally production processes need to be invented as well, but you’ll find much of modern production still relies on brute force: Stamping out forms and stamping metal in to shape happens so much more then one generally cares to think about. That is done by the brute force lifting of a weight, which simply requires mechanical energy. The more energy available, the faster and more often you can lift the heavy thing, the more metal you can stamp into shape.
So when energy densities increased, production processes advanced as well as human innovations such as the assembly line and automated production came about, the labor share of population in production factories started falling as well. Yes, i realize alot of it got moved to China and is hidden from Western audiences, my heart goes out to the Foxconn employees living under suicide nets too. Our modern world still requires a giant amount of production capacity. But this does not take away from the fact that the production of goods takes less Chinese now then it did twenty years ago; Or we can produce more advanced goods with the same amount of Chinese. “Bringing the jobs home” is a fantasy, as the factories would have to be built from scratch and modern factories require such few hands for such a large output of production running purely on electricity and raw resources…
The production might come back home but the jobs won’t.
This has lead to advanced economies completely switching to Service based economies, where a Service is in effect an intangible good. It is something humans want, but it is not something that requires production to come into existence, merely labor. A good example is the humble Hairdresser/Barber. Cutting hair does not produce anything; outside of scraps of hair that nobody wants and are disposed of. Yet it has both a need and want component; Human hair continually grows so eventually it needs to be cut lest it get in the way. People can do it themselves or have a relative do it, but it’s cumbersome and us humans value looking pretty alot. We want it to look nice and we have a need for it to look decent.
So people need to have their hair cut and want to have it done properly, but values per hair cut still differ. Some just want a simple shortening of their hair without it looking like a mess; providing work for the simple barber who offers a cut at a competitive price. Some value the look of their hair highly thus want alot of effort expended on it, effort and skill that has to be compensated for, providing work for upscale hairdressers, who might even command a premium on the basis of reputation (which is another intangible good).
This provides alot of continual economic activity that adds value to society – but it does not produce anything tangible. And it is income from activities such as this that can serve as an analogy to the gold “the system” provides when killing monsters, providing income outside the production of goods to then afford buying those goods with.
In other words, where food entirely subsidized by the government, those subsidies could and would be justified by taxing income generated in the service economy. The tax just can’t exceed the production of intangible goods.
And from my lifetime growing up it doesn’t take a genius to see the Intangible economy is alot larger these days then the Tangible economy. This again from simple observations of the humble barbers: The amount of hair salons in my relatively small city of now ~250,000 inhabitants has grown to insane levels. Their current number surely outstrips the population growth, and it has accelerated after 2008. Especially since the rise of internet shopping many shops no longer are confident they can afford the rents of a storefront (rightfully so) and thus leave the space unoccupied for other things. There’s now a hairdresser in the main shopping street in my city, which is the first time i’ve seen one there in my entire life having lived here because the rents on those buildings are outrageous. I’m sure the pandemic has put a dent into their numbers for now, but once the virus passes they’ll be back in force. Which makes sense; you cannot get your hair cut over the internet (yet).
One has to take into account that the Tangible economy is currently Artificially Inflated as well. Due to the nature of our current unscrupulous capitalism, MANY items are produced with inherent obsolescence. In other words; As a species in general at this time in 2020; we are NOT concerned with making things that last as long as they possibly could. This too is a symptom of the perpetual deflationary force of technology surpassing human wants: We CAN make things that last an entire human lifetime now, and we can do so at an affordable price.
But if a company makes a product that satisfies your needs for your entire lifetime… Why would you buy next years model?
Do you see the insanity of that statement? Yet it is pervasive in our modern economy. The damn deskchair i’m sitting on didn’t even last a year before it started breaking down. The chair i got before that lasted 3 years, the chair before that 6 years. And i sit behind the computer, consistently, A LOT. So don’t tell me things are getting better. Things are getting worse. And we are WASTING resources on this insanity. Really i’m glad i won’t live to see 300 because the future people are not gonna be nice to us.
If you want to know the real production costs of the modern economy, i will never be able to come up with a better example then 7-up. Specifically there was a time where my preferred choice of soda drink was 7-up, so i used to buy that with my weekly groceries (i don’t like to go out either). Now i rarely ever look at the price because i need to eat anyway, but one time the big 1.5 litre bottles i usually bought where out of stock so i had to go for the 1 litre bottle instead. Since i drank the stuff all the time i wondered if i shouldn’t just buy 2 times 1 litre and buy more then usual instead of less. Since i wondered if the price was appropriately less (AKA is it gonna cost more or can i buy 3×1 bottle for the price of 2×1.5 bottles?), i looked for the difference in price between the price of a 1,5 litre bottle and a 1 litre bottle of 7 up.
The 1 litre bottle was 1 euro 19 cents. The 1.5 litre bottle was 1 euro 27 cents.
No i’m not kidding, blew my mind too. I realized then that in terms of shipping, they’d ought to cost similar rates. Since shipping is done with pallets you can see it as being able to fit a certain amount of substance within a certain volume for calculations. With the 1 litre bottle you would have more plastic packaging per cubic meter of pallet, as you would have to fit more units of bottle in the same space to get the same volume of liquid contained within the bottles. So that is something to be kept in mind. But because of the unwieldy shape of packaging round bottles in square pallets, that space difference is generally negated by turning 4 or 6 packs of bottles into a packaged square anyway. In short; you can (roughly) assume the same amount of liquid, weighing the same amount of weight, costs the same to transport regardless of the form factor of the bottles. If anything, the larger ones should be slightly cheaper in terms of liquid volume per weight.
Just to add; in the years leading up to that purchase we’ve had supermarket price wars in the Netherlands, when the big chains tried to obtain more market share by cutting prices as low as they could go (yay competition). After multiple of these price wars price margins have been annihilated along the entire supply chain, so groceries in the Netherlands are (or at that time where) very close to wholesale prices/production costs, further explaining the small spread between quantities of the same good.
So that means in short; the price of getting that 1,5 litre bottle on the shelf and getting the 1 litre bottle on the shelf should average out to be exactly the same in transport and production costs per total volume of liquid. And with the price wars, the only (significant) difference in well-to-wheel price between the bottles per bottle should be the 0,5 litre of liquid. And exactly this fact was represented in that price difference: The exact price of getting 0,5 litres of 7-up on that shelf was 8 cents. EVERYTHING ELSE was either brand value of 7-up or margins along the supply chain on the base good because everybody needs a little bit of profit at least.
Considering the amount of calories contained within 0,5 litres of 7-up thanks to its sugary goodness, the true price of production per Kilocalory is astounding. Everything added on top of that is nothing more then human folly; Of us not wanting others to have too many things relative to ourselves.
My point is: Should we abandon that folly and start looking at production costs in terms of real costs – we could truly create the garden of Eden not too long from now. While paying for it with legitimate, real economy added-value from the service economy.
Unfortunately, we are far removed from Utopia. And, if we want to get there, there will have to be a transitional period. While the digitized economy is a good start (the real world production cost of an animated movie (a couple of PC’s and a mainframe) is just as insanely small as food while the added-value of animated entertainment is another massively valued intangible good) i think it’ll require more. Not everybody is cut out to be a programmer, animator or musician. Nor can i stand to see even more hair dressers in this city, there has to be some sort of limit. We’ll hit the limit on the variation on what services society needs too at some point due to our linear existence (humans can only really enjoy 1 service simultaneously and there are only 24 hours in a day; 8 of which we can’t even use). So let me close up this article with a possible solution for the transition: Virtual Labor.
Let me hit you with a shocking fact:
World Of Warcraft Gold Is Worth More Then The United States Dollar.
Just as i stated in the beginning of the article, i have played many MMO’s before WoW, but of course i also ended up playing the biggest of them all. I started about 6-7 months after release. Benefit of experience kids; i never experienced the login queues at the beginning because i’d already seen just about every botched launch of MMOs up to that point, and i wasn’t about to touch one that all my friends in IT college where excited for. The same friends who all declared me “crazy for paying a monthly sub for any game” when i explained the concept of MMO’s to them 6 months before the World of Warcraft announcement.
Ever since then i’ve played 5 expansions (and Shadowlands will be the 6th though the decline of the game tires me), becoming my longest and most played MMO. So i am quite familiar with the game. I know how to make money in the game (had quite a business selling Golden Rods to desperate enchanters back in the day) via farming and the auction house. And i’m an Altoholic; meaning i create far more characters then i know what to do with (i had 30 max level Characters in Warlords of Draenor while hitting the account cap of 50). Also means i get most my gold simply from playing the game, as the system gives quite a bit of gold during leveling, rather then crafting and the auction house.
In a conversation that i had with Tom Bodrovics from Palisade Radio, i came to the conclusion that it’s possible to measure the gold in World of Warcraft in real world value and in fact, due to the built in limitations of the system, that it was actually backed by value as opposed to the Dollar which at this point is backed by nothing. This through an item called the World of Warcraft Token.
First a little history on this Token. World of Warcraft – as well as any MMO that has come before it and since – has had a problem with “gold sellers”. These are people or entire companies which employ bots – external computer programs that control your character for you – to continually repeat the same actions without humans needing to be at the machine. Often they ran circles in the same area moving in predictable, stuttering ways (you could see the program giving commands) just to collect the gold and items that dropped from doing that activity. After letting it run for a while the people behind the scheme simply send the gold off to another account, which then sends it to a customer’s account after that person has paid real world money for said gold.
The reason botting has value at all (AKA why do it) is because of the time saving ability of just buying ingame gold off a gold seller versus farming for it yourself. Where the entire economy is based upon earning gold with labor to pay for production, if you can somehow come into possession of that gold through external means, you can save the labor/time value to spend on other things, while still affording the products produced by that economy, draining value out of the system COUGHCOUGHFEDERALRESERVECOUGHCOUGH
I’m sorry, must be the ol’ Rona (and we’d do well to remember that). In any case, no MMO has been able to solve this problem effectively. As the more bots are banned, the more lucrative it becomes for whichever ones are left – the added profits drawing in more supply eventually. Kill one, two pop up in their place. Not even Blizzard, the makers of World of Warcraft, could solve this problem even though they tried for many years. Eventually, with the stance of the community towards selling gold softening over the years, things changed. In the old days, the hardcore gamers where rabidly against anything that enabled anybody to skip the same time value spent as everybody else had to to get ahead. Buying your way to the end diminishes the exclusivity value (and games where supposed to be an escape from reality). But with a more casual crowd being introduced and drawn to MMOs over the years via World of Warcraft, eventually Blizzard caved and just started selling gold themselves. Which worked by the way, haven’t seen a gold seller in years. Except for yknow, Blizzard.
Now, they couldn’t just sell gold by printing more into the system, as they knew it’d lead to hyperinflation as so many MMO’s had suffered before, while WoW had not yet up until that point. Oh, there’s been massive inflation since, but that comes from a decision of the developers to inflate the value of the WoW token, but we’ll get to that in a moment. So instead, they came up with a unique solution: They would sell gold according to what The Market considered its value to be in fiat, rather then setting a price themselves.
Blizzard introduced the WoW token at a set price of $20. The token would always cost $20, but the amount of ingame gold that you could get per token would vary. How this amount was determined was through the ingame auction house. While normally limited to the realm the auction house was located on (because they either learned from Champions Online’s mistake or never made it in the first place as far as regular items went), the WoW token would be sold on a game-wide basis. The only split would be between the continents as servers aren’t linked internationally in any way. This is the current value of the $20 tokens in ingame gold:
You’ll notice Asia is higher, that’d be because Asians tend to use botting a lot more and it is alot more accepted in Asia. With more ingame currency in circulation vs real world fiat available, prices go up even compared between identical systems, simple as that. Again the eggheads at some of “the most prestigious universities” could stand to play a game or two. Amazing what can happen when your success depends on sound economics.
The prices on the screenshot you’re looking at is the price for which a Wow token currently sells ingame. People farm the gold in the game by killing monsters, providing a labor base for it, which is then transferred to whatever person the token is bought from. Meanwhile, Blizzard also took the lessons of Redmoon to heart: Value is determined by Utility, not Scarcity. In other words: WHY would anybody want to buy a token for ingame gold? After all, if you buy a token for fiat currency, you then still need to sell it in the game to get that transfer of funds, which requires a human to decide to transfer you those funds. So why would anybody buy one?
Because the Token can be traded in for 1 month worth of subscription which gives you access to the game in the first place. Initially; Since the introduction the token has obtained even more uses. But what this essentially means that Tokens are accepted as Taxes (yet the gold is not! If no tokens are bought for fiat, no tokens are brought to market and gold cannot be exchanged for subtime). The subscription fee to play the game is a tax; just like i need to pay taxes to be allowed to live here, i must pay a fee to be allowed to live in the World of Warcraft.
This is a sweet deal for Blizzard by the way because a regular Fiat subscription costs between 15 to 12 Dollars a month, depending on how much time you subscribe at once, while token enabled access costs $20 per month every month. And by how they set it up, in order for somebody to spend in game gold on a subscription, somebody else first needs to buy the token for $20, essentially paying for that other person’s subscription at a 25-40% markup. To buy you need a sell, and to sell you need a buy. Genius.
I promised i would get back to the market forces comment; I want to just highlight how Blizzard has been screwing over its customers in a hidden, multi-year way (cause i hated Battle for Azeroth and i need to get it off my chest). While Blizzard isn’t lying that the value of the token in ingame gold is determined by market forces, the value of ingame gold itself is controlled wholly by Blizzard. Now as i’ve just written a very long article about how messing with the price of gold is not a good idea and it’ll be controlled by market forces anyway, there is a different way in which Blizzard controls (and reduces) the value of ingame gold and by extension the token: They are the economy.
They don’t just set the price of gold, they set the price of items. This seems weird, they oughtta be connected. But they don’t have to be: Blizzard is in control of the money supply, meaning they control how much gold drops per monster. But they are also in control of the item supply; what the drop chance is of every single item or their numerical cost in production within crafting systems! The spawn rate for map based items such as ore veins is also something they set!
This means they can separately tweak “the production” of gold, and “the production” of items in the game, such as the main ingredient in flasks; Which are flowers you pick up from pseudo-random locations in the world and which spawn there at a set rate. And nobody will deny that between the release of Legion (which was the previous expansion pack) and Battle for Azeroth (the current expansion pack) that prices for stuff on the auction house have skyrocketed. While things may be somewhat different now as i haven’t played in a while, the price of a stack of flasks increased 10 fold between the start of Legion and the start of Battle for Azeroth even after the raid season was well underway. Meanwhile, the production of gold through increasing the amount of gold that drops per income source did not keep pace at all; it barely increased.
Effectively; they caused price inflation through disinflationary production deflation; causing a supply/demand mismatch and prices measured in gold to skyrocket.
And because gold production didn’t increase to keep pace with the price increases of necessary items (flasking up in organized raids is mandatory) i’ve struggled the entire Battle for Azeroth expansion with paying for flasks and raid equipment – as i don’t have the time to run around and farm materials to sell on the action house. Which wasn’t mandatory to fund raiding in Legion (dungeon running income was enough) but certainly was in Battle for Azeroth. While my gold continually increased under Legion and Warlords of Draenor while raiding and not farming materials, it continually decreased in Battle for Azeroth while raiding half as many days (so my main ingame cost halved). Granted, i’ve played less fervently in Battle for Azeroth overall; but the effect has been immediately noticeable since the first raids and didn’t improve for multiple patches.
It had the desired effect as well. The price of a WoW token used to be ~280,000 gold right before the launch of Battle for Azeroth on the EU servers, value driven up by the increase in utility added to the token during Legion. Not long after the launch of BFA (the launch, not the pre-patch though that also dented the price somewhat), the price had plummeted to ~180,000 per token (on EU) purely on the back of increased demand. Naturally, the less each token is worth in gold, the more tokens need to be bought sooner to keep up with ingame costs (such as repair costs) thus the more often people are enticed to give $20 to blizzard as the need to skip the time value of grinding only increases as rarity of raw resources increases, or if their number required in production increases (something Blizzard also increased through adding ranks to recipies; you get lower ranks first which use more materials and higher ranks are often drops from places requiring high effort skill/gear). The key realization being: Blizzard can print as many of these tokens as they want. It costs them nothing. So if somebody buys a token from blizzard, they’re buying an intangible good for $20. Sure, the price has to be justified by ingame demand so they can’t sell tokens into the market themselves. But this is still price fixing/market manipulation 101: By increasing scarcity of raw resources, Blizzard decreases the value of ingame currency relative to ingame items and by extension the token that can be traded for that currency, increasing demand for the token and thus effectively increasing their income.
This is a massive conflict of interest that has so far gone unnoticed. Sure, it’s their game to mess with as they please, you can just not play it (and i’m not much inclined to do so anymore). It’s not exactly illegal what they’re doing either (the law really hasn’t caught up to any of this) and people always have a choice to not buy the token. But don’t tell me this isn’t some extreeeeeeemly shady shit that hooks into peoples (maybe unhealthy, game addiction is a thing) desire to play the game. I mean you wanna play the game right? You wanna raid right? Well that costs some flasks! Awwwww, don’t have the time anymore to farm gold? That’s ok… I have the good stuff right here……
Anyway, Blizzard’s shadiness is not the point i wanted to make, though it does provide a background to the question whether or not digital stuff has any value at all. The interesting observation comes with the conclusion that; If the token can be bought for Fiat and exchanged for ingame gold – That means there is a real world value link between ingame gold and the outside real world, through fiat currency. This means we can start applying real world value calculations to the ingame gold. And what we find is shocking.
The first important realization comes from comparing the M1 money stock within a World of Warcraft server (lets take servers on average otherwise we’re gonna get lost in server population details that don’t matter) compared to the M1 money stock of the US dollar. Rather then focusing on numbers or comparing bases, volatility is the major interesting difference between the two: The M1 money stock of World of Warcraft is in much higher flux then the real world M1 money stock of the US Dollar. Since the Federal Reserve is the only one with direct permission to print currency while the only other source is lending through fractional reserve banking (Which only creates new money in interest on paid back loans), the money stock of the US dollar can only decrease when either the Federal reserve removes money from circulation (debt to the Fed is paid back) or credit contraction (debt implodes leading to write-downs exceeding principal). Neither has been desirable by the authorities in my entire lifetime and has been avoided like the plague.
…Well we used to say that but considering February 2020 and how much effort was spent trying to avoid the pandemic – Let’s say it’s been avoided like common sense.
In WoW however the currency is printed and removed constantly by the system: The video game mechanics of World of Warcraft the videogame. And this means it is continually created and destroyed. When the system “pays out” to you, money is printed, and when you pay into the system AKA buy services from vendors part of that system (NPCs) then money is destroyed. Since code creates and destroys money at will there’s no need to keep any reserve as the system never fails (if a payout does fail it’s considered a glitch that’ll quickly be patched out, players like their loots). At first glance this seems incomparable. Until you realize; the ONLY way to get “gold” in the video game is through the systems in the video game. All systems to do so are equally available to all users; And the systems available to each of the users ALL require Virtual Labor.
That is to say; All sources of Gold in World of Warcraft require both a time input and a labor input. There are 3 sources of Gold in WoW: Killing monsters which drop gold directly, killing monsters that drop items or receiving items from quests that are then sold to system vendors I.E. NPCs which pay out gold, and receiving gold as part of a quest reward.
The first source requires both labor and time input, as the player needs to defeat the monster and loot its corpse. Now, if we assume the player is grossly overpowered due to being a top tiered raider – and as such he is capable of handling unlimited monsters at any one time – because of the dispersement of monsters in the world the player still needs to run from location to location to be within range, a fact true for all players within the system. And even though the game introduced area of effect looting a while ago, purely due to processing time and data transfer, looting will always take a minimum amount of time. Since it requires time and labor, it produces value. Since the asset it produces is Gold (or money), the production value is assigned to that Gold. Since the labor and time value is always (fairly) consistent and supported by a minimum time requirement of data transfer, the value is consistent. It has Value; Intangible value (I.E. the ability to accumulate assets virtually within in the game and not the real world) but value none the less. Even if Bots take the labor side out of the equation, the time value cannot be skipped by the bots either as the game simply doesn’t transfer assets between its databases faster.
Item drops and vendor trash are the same thing. They can be seen as deferred value; I.E. gold that doesn’t drop right away or is only obtained after the item has expended its time value I.E. has become obsolete and is due for an upgrade. Mechanically this is done to change up the routine as gold never physically drops (it used to but that got changed as it only had an inventory presence, not a game world presence) and thus generally always automatically gives the same amount per monster type (species?), often divided among party members too. Suddenly looting an item that has no other use then to sell for a bunch of gold at once “feels” like you suddenly got alot of money… But calculated over the time value that it’ll take you to run back and sell it and then run to another destination, it’ll be close to the money-dropped-per-second value of continuous farming.
Quest rewards bring small boosts to inflation, as they are often multiples of the gold one earns while farming. But this is offset by their limited availability – Quests are either a one off deal per character or limited in time per reset; I.E. Dailies. Any instantly repeatable quests such as reputation turn ins you will find either don’t give a gold reward or give such a small reward that it falls in line with money earned per hour farming the asset to turn in in the first place and replaces its vendor cost. Higher level quests give more, and there’s no limit to how many characters you can level – but the time it takes to level from level 1 to quests that give any significant amount of gold within the current inflation cycle (AKA increased base cost of gold within the current expansion VS the previous one) prevents this from causing extreme amounts of inflation as well. Even though some people can use it as a method to generate a good amount of cash by being extremely efficient in leveling; the vast majority of people will not employ it because it’s not fun. Naturally, quests need to get done too, so both time and labor apply.
Now – i’m sure Game Masters have the ability to “print” gold, mainly as a tool to restore lost items/gold when an ingame glitch occurs. Basically the owners of the system can still print more should they wish, though naturally they’re not allowed to do so randomly per company policy for obvious reasons. Naturally one does not simply trust company policy. However; Unlike the Federal Reserve in the real world, Blizzard itself has Zero incentive to print more gold and cause general inflation (currency inflation, not supply shenanigans). This because their real world income is in fiat and not ingame gold, and their fiat income increases with decreasing the value of the ingame gold without reducing currency supply: The longer people have to farm the gold to afford ingame items, the quicker they are to reach for their wallets instead to buy a Token (which Blizzard has no problems printing all day long) to purchase another player’s gold after they did go through that trouble.
Where as the Federal Reserve gains assets by devaluing the currency, allowing it to use valueless printed money to scoop up real world value backed assets such as mortgages and with them the houses they represent; Blizzard gains real world assets by increasing the demand of the currency in the game, as it increases demand for other people’s virtual labor and with it the value of the asset they’re creating (the gold) and by extension the tokens, achieving more sales and gaining more Fiat which they can spend on real world assets. This is then automatically balanced by the increased supply of tokens decreasing the in-game gold price of said token (people only buy tokens for gold and subs every so often), which entices more people to trade in their virtual labor for real world benefits (paying for their sub with ingame virtual labor through the utility value of the tokens). This then increases the gold price again through increased utility demand until it reaches equilibrium between the two forces. Shortly put; even if the amount of currency available increases, as long as the intangible value of that gold either stays flat or increases faster through increasing utility value (since tokens can be exchanged for gold, the utility value carries over) or decreasing the supply of items that gold can be exchanged for; the system maintains equilibrium.
Naturally; this is predicated on the utility value of the token and of the gold as well. Should Blizzard decide to reduce said utility value by taking away uses; Price per token in ingame gold goes down with it. The intrinsic value of the Gold also need to be kept in mind: If nobody wants to play the game, nobody has need for the ingame gold, thus the intangible value of the token plummets with it. Basically put when the game is no longer played there’s no utility value in buying tokens; Even if you’d use them outside of WoW such as buying other games with them, the convenience value over buying a bunch of tokens is lower then just straight up buying the game or services with fiat directly (assuming it’s an option).
Finally the creation, or inflation of gold is balanced with the destruction, or deflation of gold. This is done via various “Gold Sinks”, a well known concept within MMO’s. Basically, Gold Sinks are expenditures you HAVE to make within the game, for various reasons. The most well known within WoW, and most hated of all, is Durability.
Items in the game all contain Durability (though there is a chance on getting a random “indestructible” modifier) which means they degrade over time with use, and dying within the game due to NPC characters or environmental hazards that should’ve been avoided (such as a boss encounter’s cyclical area of effect attack) means you take a 10% durability penalty to your gear. Actions also hasten the degradation, getting hit with more damage degrades gear faster then simply times of getting hit (Tanks, which are there to take the monster’s ire and thus punishment, HATE durability, as it eats up a large part of their income).
Repairs can only be made through the system. That is to say, you have to go through a NPC vendor that offers repair capabilities. These can take many shapes, from the standard vendor always in the same place, to Jeeves, a mobile summonable robot butler that offers repairs, to “Auto-Hammers”, a craftable consumable item that offers nothing but repair capability to a party when dropped in the real world. But even on those, it costs gold to repair, and as it’s paid into the system, the gold simply disappears.
I’m not going to name all gold sinks as they tend to be far more numerous then the ways in which you can earn money. People like earning money in large batches, but they prefer losing it a penny at a time. Just as another random example; Virtually all crafting recipes require one or two NPC store bought items that virtually always cost gold (Tailors thread or Alchemist flasks for example). Any time you have to pay into the system, it’s a gold sink.
But that consistency is what makes the gold retain its value, even though it is continually printed and destroyed instantly and thus does not carry time value per unit perse. Because ONLY the system dishes out gold and ONLY the system takes gold away, and each matter in which it does so does require a Consistent time/labor component, it remains both verifiable and capable of holding/transferring value. It only exists as code within the system so the system functions as the central authority; So as long as the system says it’s good, it’s good (i, for one, welcome our new AI overlords). Meanwhile there’s no doubt that ingame gold is Fungible either; the system declares so as well by declaring that 2 gold is as good as 2 times 1 gold (silver and copper take care of smaller denominations).
This makes it real world currency in every sense of the world; That it’s intangible doesn’t enter into it. As 97% of all Dollars are digital these days and as such are intangible too, and have been for quite a time while the world kept on spinning (not to mention fiat only has intangible value to begin with). So it already achieves parity with the US Dollar as a Fiat currency. But the fact that ALL sources of World of Warcraft gold require a connected mandatory input of either Labor or a Time Value (and the only sources that don’t have a strong incentive to not add more manually)…
Makes. It. Money.
And then the lurking thought, that the United States Dollar doesn’t require any labor or time value to be created, comes back. After all, the principle behind money as debt is that it has value because lending has value (again, intangible value). The ability to pull forward and compress time value to raise capital for something that otherwise could never be funded DOES have value. But that is also why it is so important that that time value is satisfied – In other words, if the loan is not used to establish some form of sustainable production that will survive/exceed the duration of the loan – Tangible or Intangible – then the money that was spent in pursuit of that venture is no longer backed by value and is either worthless (in a vacuum) or diminishes the value of all other currency in circulation.
As stated. The ONLY way money is lost in a fractional reserve banking system is if the central authority (the Fed) destroys it, or a revaluation of the assets on the balance sheet leading to writedowns that exceed the principle underlying the original valuation. Lever $100 to $1000 and lose $800, that’s not a system problem, that money was going to be destroyed anyway upon payback as only interest on loans is truly new money in a fractional reserve system. At most it’s a personal problem depending on distribution of that money (AKA the bank’s problem). Lever $100 to $1000 and lose $1200, THAT’s a systemic problem – or atleast will cause them at scale. Credit destruction cannot exceed principal – and the credit destruction in the whole system cannot exceed principal in the whole system (systemic overleveraging). IN ALL OTHER SITUATIONS, currency is Transferred. Not lost. Even during credit contractions, the original amount lent out was still spent on something somebody provided and the money supply only contracts when ALL CREDIT, taken over a whole, contracts beyond principal on a whole. And this is why we haven’t had deflation even while living through multiple massive credit events; Because debt is debt is debt (if the currency is fungible, and the currency = debt, then debt = fungible too) and the Federal Reserve just adds whatever credit that was lost back into the system as needed.
The only difference is the location of credit, which was relocated from the populace to bank “reserve” assets. Cantillon sends his regards.
It’s very hard to find a situation where currency is actually lost forever by spending it on something, rather then being transferred to another entity within the same system. Only when loans are paid back in full is a large amount of currency destroyed, but this this currency was deferred value anyway so it should be left out of the equation. It never existed in the first place, because it was created as “leverage”. In other words, if that currency isn’t destroyed upon return it causes problems until it is, while changing nothing about the amount of currency in circulation on the basis of principal. You could consider credit-created currency as “eurocurrency”, like the eurodollar. It’s not a dollar yet it requires them, just like it’s not a currency but can be used as one.
Therefor, if the Federal Reserve creates interest free loans with a fundrate set at 0% that never have to be paid back; money is never destroyed. Credit can’t contract because credit doesn’t have to be destroyed and any destruction of principal can be compensated for even bigger loans that never have to be paid back. Since the central authority is the one making these loans, i’m pretty sure they’re not going to recall them on a whim either or suddenly let credit contract organically after all this time. Which destroys the value of the debt tied to those loans – Once the creditworthiness of the borrower is infinite AKA the loan doesn’t have to be paid back/is guaranteed, Risk craters to zero. If there’s no risk, there’s no reason to not lend. Since there is no reason not to lend more, the Utility value of debt craters to zero – Debt No Longer Matters as a guarantor of risk. There’s no reason to hold debt, as debt requires time to be paid back, while new loans providing new currency without a time value component can be made immediately.
The Time Value of Debt has cratered to zero. Since the United States Dollar is equal to debt since it’s money as debt; The Real Value of the US Dollar has cratered to Zero.
Naturally this is predicated on the singular premise that the debt will never be paid back, of which of course we are assured by the central authority that it will be (Or just blindly ignored hoping it’ll go away). Sadly, reality has caught up to their wishful thinking: It is Mathematically Impossible for the United states to pay back its debt.
Lets take JUST the national debt, taken from USdebtclock.org and standing at $27,139,000,000,000 at the time of writing, we divide this by the number of registered tax payers in the United States (note; not the amount of people actually paying tax, just the tax payer number on the site, so i’m already being generous here). This is listed as 124,593,271 tax payers. It is their creditworthiness which is backing the national debt and by extension, the United States Dollar.
This gives us an amount of $217,820.75 per tax payer. Meanwhile, the Real Median Personal (yearly) Income in the United States for 2019 (using FRED data) was $35,977. I’m leaving the pandemic out of it, because i don’t think i even need to add it into the picture anyway. Purely based off this picture alone (and assuming median personal income only counts Tax Payers for ease of calculations), to pay off the national debt;
ALL TAX PAYERS within the United States would have to pay 100% of their income to the State for $217,820.75/$35,977 = 6.05 years.
This still seems manageable, taken in a vacuum. But as i’ve been harping on about, the problem has become too big. As those tax payers all have debts of their own (and 100% of income is unrealistic to begin with). USDebtclock.org lists the Total US debt as $84,653,000,000,000 at the time of writing. $20,811,000,000,000 of this is Personal debt, which has to be serviced at least partially (and paid back, otherwise it’s worthless and leads to writedowns!) by those same tax payers. But sadly, i can even leave both those numbers out of the equation, and it’d still be too late.
Since the National debt is ever increasing (and quite rapidly i might add), we can safely assume that none of those tax payers underpinning the debt… Have actually started paying it back. In fact, since it’s increasing, they’re still running up the debt!
This means that whenever they do start paying it back, it comes as an additional cost to their income.
Logically this means that; Whatever income they’re going to spend on paying back the debt is going to have to come out of Discretionary income. As it is an additional monthly payment they do not yet have at this point in time, so it comes on top of all mandatory monthly payments. And that vastly changes the picture:
Once we start digging into personal income, first we hit Disposable income, which is defined as personal income minus personal taxes. Well, death and taxes and all that, so those have to be taken out first (and messing with national tax income further complicates things). Then there’s a bunch of stuff such as food, rent, living expenses etc. These things have to be expended as well. Count all of the monthly expenditures, subtract them from income, and you get savings. Since this is all measured in billions of dollars over the entire economy, the savings rate is easier to work with; Which is 14,1% currently. Naturally when pressed i’m sure the US tax payer could tighten the belt and up the savings rate – and with it the amount of money available for paying back debt – but lets assume that isn’t possible. If anybody wants to challenge that assumption i’ll start using pre-pandemic savings numbers and just make things worse. I’m still being generous.
If we apply the savings rate of 14,1% in August 2020 to the median personal income of $35,977 (again assuming tax payers; since this includes non-tax payers which tend to have lower incomes, tax payer median income will be slightly higher) – then we get $5072.75 per year saved on average by the US tax payer. It is from this “free” income that the national debt will be paid back, as it is something they have not yet started to pay back, meaning that it is an additional cost.
So when we divide $217,820.75 by $5072.75 in yearly savings we get 42.94 years to pay back the national debt. This is already longer then all debt maturities by the United states out there, so i don’t know why anybody is still buying those because it’s going to take the US longer then 30 years to pay back their 30 year maturities in the best of cases. But it gets worse. Just to list off the assumptions this makes:
- None of the other debt implodes. Personal debt is not paid down, merely serviced. This service income is locked and depresses growth.
- None of the other debt increases. Additional Debt loads per tax payer stay zero. More debt splits savings income further.
- 100% of savings are dedicated to paying down the debt for 2 generations and nobody complains.
- The US STOPS running up the national debt as every second they do, they’re only making things worse for themselves!
And that last one is a bitch, because a lot of the tax payers are also getting that very tax paying income from the government, either fully or through supplementary income. Not everybody pays income tax, but everybody pays things such as property taxes and sales taxes, which provide revenue for the government. And Government workers pay tax too while being paid fully by the government. This includes military personnel. In order to stop running up the deficit, the US needs to cut atleast $984 billion off the 2019 budget (nevermind 2020). Since the Discretionary Expenditures of the US government totaled to $1293 billion, The US can basically give up its entire military ($637 billion in 2019, more now) and still have to take out $347 billion from stuff like the department of education, veteran affairs, etc.
And again the problem is too big. Because reducing that spending also reduces the available tax base and with it tax income, putting additional load on whoever is left, which just makes the problem harder and the time required to pay the debt back longer. Meaning even longer then 2 generations worth of American 2019 discretionary income at 2020 levels of savings rates.
To make a long story short (not that anybody outside of the US didn’t already know this), in conclusion, there is no way in hell the US tax payer will ever pay back the debt run up by the United States. Even if they forgo personal debt and keep the national debt, purely the reduction in deficit spending needed to plug the current hole would cause such a collapse of incomes that the remaining debt will still never be paid back. Either by Default (unlikely as the Constitution prevents it and a constitutional change takes 2 congresses to agree) or by Inflation (currency and with it debt deprecation as the USD = debt), there is no way out other then a full reset.
Which doesn’t have to be a bad thing because money as debt was a stupid idea to begin with and it’s going to end up at zero anyway because of interest being mystery currency that comes from nowhere; But the central authority can’t create (by law) debt-free-currency to add to the system. They can only create Debt as money is debt. Which invariably leads to credit crunch of the interest eurocurrency or just full blown resets where the entire system capitulates.
Since the creditworthiness of the US tax payer base is demonstrably worthless, and US national debt (in the form of bonds) is demonstrably worthless, the US Dollar is demonstrably worthless.
But Wow gold is demonstrably valuable. It represent either time or labor in all cases. And this leads to a final, quite interesting conclusion:
Since the value of each WoW token in US dollars is fixed to $20, when the US dollar starts to hyperinflate (Assuming blizzard doesn’t raise the fiat price of the token, which they will as its a huge source of income) that would show up in value of ingame gold per token plummeting, as the value of the dollar starts to decrease while the value of the gold earned ingame will stay the same or even increase over time by the above mentioned incentives Blizzard has to do so. Essentially the token will go down in virtual gold price until it hits a bottom -the point where tokens are so ubiquitous every person has obtained all goods and services (for the maximum allotted time) through the utility value of the token and demand drops to equate to the supply of new people coming who not yet have all services. People will buy tokens like mad because they have near unlimited fiat to do so, but they all still need to be sold into the market for time/labor valued gold, so the ingame price in gold plummets. Meanwhile; if the Fiat cost of the utility services/goods the token provides isn’t raised either, the time-value of the token drops to 0 (why buy a bunch of tokens when you have unlimited fiat to buy things directly?) and the token becomes entirely worthless.
In other words, the wow token dies a silent death as nobody will wanna go through the trouble of buying it on the auction house, while the utility value would be lost as it would cost no effort what so ever to generate the ingame gold to afford the maximum number of tokens applied to your account (which is something like 2 years of subscription time) if the players haven’t already purchased everything outright with unlimited fiat.
Here again though we see the benefits of deflation for the populace: Because a WoW token would be so cheap in game, everybody working that economy could afford unlimited amounts – and thus everybody would essentially get a permanent subscription to the game for next to nothing. Not because the ingame gold value changed. But because the US dollar has lost all value, and the subscriptions are priced in US dollars in the end (via token or straight Sub). If the price in dollars isn’t raised the Subscription also becomes essentially worthless as access to the game would be ubiquitous.
Naturally since the sub is how Blizzard pays for the servers and bandwidth costs this would end the game if they wouldn’t raise the dollar price of the Token and Subs. Remember, real world production remains a thing, so they will be forced to. But if THEY could pay their fixed costs in WoW Gold; As in if their bandwidth providers accepted WoW Gold as currency, the conversion to fiat wouldn’t even be necessary. In fact, no conversion to any other currency would be necessary and the dollar could be abandoned wholesale without affecting the system. Rather then Blizzard printing tokens themselves when players can no longer buy it for fiat, the bandwidth providers could just bill Blizzard an amount in WoW tokens, which Blizzard would bring to market on their behalf, and the players would crowdfund the bandwidth costs by generating the gold needed to do so via time/labor added value in the game, the utility value of the tokens would then become being able to play to game as a group on the whole.
The only thing stopping it is the utility value of WoW gold to the bandwidth providers; which would be zero. Unless there was another external utility source, such as making taxes payable in WoW Gold (the ability to pay taxes in a currency has strong – but not universal – utility) and government employees receiving WoW Gold as payment.
Now. Just to finish up a long article with the obvious; of course replacing the US Dollar with World of Warcraft Gold isn’t a good idea. Not for economic reasons but because the system was never designed for such a use case so there would be exploits and problems all over the place. No sense in replacing one flawed implementation with another flawed implementation.
But! The principle stands. Should it be designed from the ground up for such a purpose, it is entirely possible to create a digital economy that functions as a service economy, running on real value-added virtual labor, and have it actually work completely according to the rules and laws of economics without any reset needed… As long as the people running it keep their dick in their pants. No way around that one folks!
All it requires is Time, Labor and Utility Value in a large enough system that many people if not everybody desires to participate in, in order for Virtual Labor to become the next economic revolution.
Maybe it’s not so crazy after all….
– Kirian “Deso” van Hest.
PS; Check out my previous work, such as:
– “Why i hate Bitcoin and why Tether will end up killing it”
– “QE is inflationary, and i have the charts to prove it”
– Shadowcontracts draining the Comex of Silver and Gold.